India’s trade agreement with the United Kingdom is facing an early implementation challenge, with a dispute over import duties holding up several shipments of Scotch whisky at Indian ports.
According to a Reuters report, major liquor companies, including Pernod Ricard and Diageo, have more than 40 containers each awaiting customs clearance. Bacardi also has five containers held up amid disagreements over the applicable tariff.
The dispute centres on whether bulk Scotch whisky imports qualify for the preferential 75% import duty under the India-UK trade agreement or should attract the higher 150% tariff.
The Directorate of Revenue Intelligence (DRI) has argued that bulk Scotch concentrates do not qualify for the preferential rate because they undergo further processing before being converted into finished products. According to the agency, the lower tariff applies to finished whisky products, including bottled Scotch, rather than concentrates used in manufacturing.
This interpretation has reportedly created a difference of opinion between the DRI and the Commerce Ministry. Following representations from the liquor industry, the Commerce Ministry assured industry executives on November 2 that India would honour its commitments under the trade agreement and work towards resolving the issue.
However, in a communication dated November 4, the DRI directed customs commissioners across the country to apply the higher duty. The agency maintained that importers were incorrectly claiming preferential trade benefits for products classified as compound alcoholic preparations under a customs classification effective from May 1.
The Finance and Commerce Ministries are now discussing a possible resolution, a senior Finance Ministry official told Reuters.
Liquor Industry Faces Supply Disruptions
The dispute has left several shipments awaiting clearance, with liquor companies unwilling to pay the higher tariff. Prolonged delays could disrupt supplies in the Indian market, industry sources indicated.
The issue has also escalated into enforcement action, with tax officials reportedly conducting searches at the offices of companies, including Pernod Ricard and Diageo, and questioning executives in recent weeks.
Bulk imports account for a substantial share of India’s Scotch whisky trade. Nearly 80% of Scotch whisky imported from the UK by volume arrives in bulk before being used in the production of Indian-Made Foreign Liquor (IMFL), where smaller quantities of Scotch are blended with other spirits and ingredients.
Trade Agreement Benefits Under Scrutiny
The tariff disagreement has raised questions about the implementation of market-access concessions under the India-UK trade agreement, which came into force in July.
India imported Scotch whisky worth $335 million in 2024. The Scotch Whisky Association estimates that the agreement could generate an additional $1.34 billion in trade over the next five years.
The International Spirits and Wines Association of India has also taken up the matter with the government, expressing concern that the dispute could undermine the market-access benefits negotiated under the bilateral agreement.
A resolution is now crucial for both the liquor industry and the broader credibility of India’s trade commitments, as businesses seek clarity on the tariff treatment of bulk imports.